Vacant Northern California commercial properties get new life as housing, offices

High prices and lack of availability have plagued Marin County’s housing market for decades, but hundreds of dwellings could be in offing under plans to rework two sizable yet vacant commercial properties. And one shuttered Sears big-box store at a Santa Rosa mall is being eyed for county offices, while another at a Fairfield mall is being marketed to buyers.

While public health restrictions on malls and retail activity during the coronavirus pandemic have squeezed margins for a number of retailers, the movement to rework sizable vacant shop spaces and properties has been underway for several years, according to real estate experts.

On top of this are plans announced earlier this year for housing at long-vacant and foreclosed Fireman’s Fund Insurance site in Novato plus the ongoing redevelopment of a downtown mall in Napa.

One startling prediction is that one-quarter of the roughly 1,000 malls in the U.S. could close in the next three years, based on a December 2019 report by Coresight Research.

“It’s a big question right now that every landlord that owns something that is struggling is considering,” said Jeff Badstubner, managing director for retail in real estate firm JLL’s San Francisco office. “We’re in a unique time in the Bay Area where retail has been in flux for some of the malls.”

Key local examples of Bay Area reworking obsolete real estate, he said, are the plans by Merlone Geier Partners for redevelopment of the Northgate Mall in north San Rafael and by the county of Sonoma for the 7.4-acre former Sears store site at Santa Rosa Plaza mall.

In March, San Francisco-based Merlone Geier unveiled a new vision for Northgate, located on nearly 45 acres at 5800 Northgate Drive. After a plan to replace the shuttered Sears store with a Costco Wholesale location ran into public opposition, the ownership came back with “main street experience” approach — bring back the open-air shopping experience when the mall was built three decades ago but also add apartments, new retail experiences and outdoor amenities over the next two decades.

Called Northgate Town Square, the project has been revised since submittal to the city to have somewhat fewer dwellings: 1,320, instead of nearly 1,400. They would be in six five-story buildings. Retail space would be reduced from almost 776,000 square feet now to nearly 247,000 square feet.

In Santa Rosa, the Sonoma County Board of Supervisors in July voted to move forward with purchasing the vacant Sears store at the downtown mall for about $20 million. The county wants to demolish the store building and build an 18-story building and a four-story building plus parking for nearly 800 at a total construction cost of over $1 billion.

Another vacant Sears store in the North Bay is the 148,000-square-foot, three-story building at 1420 Travis Blvd., attached to the Solano Town Center mall in Fairfield. At over 1 million square feet, it just beats out Coddingtown Mall in Santa Rosa for the North Bay’s biggest enclosed shopping center. The owner of the Santa Rosa and Fairfield store buildings is Seritage, a real estate investment trust formed in 2015 to acquire former Sears stores and now owns 170 properties with about 10 million square feet of leaseable space across the country.

Such redevelopment of part of a mall versus reworking the entire property is that there are multiple stakeholders involved with such deals, according to Badstubner, who has consulted on a number of Seritage property listings in the Bay Area. That’s because big-box stores in a mall may have different ownership from the mall itself.

“And in that case, you still have to go get approvals from your adjacent owners that are part of that overall REA agreement,” Badstubner said. Such reciprocal easement agreements are common legal documents used for mall-style shopping centers.

At the beginning of this year, one of the North Bay’s long-vacant office properties found a new owner, one that plans to rework the sizable Novato property for housing and retail.

San Marin Owner LLC, led by Bay West Development, a San Francisco-based development firm, and Forum Investment Group, a Colorado-based real estate investment and development firm, on purchased the 63-acre vacant Fireman’s Fund Insurance former headquarters campus at 775, 777 and 779 San Marin Drive. The property, built in 1982 then vacated by the insurer in 2015, had gone into foreclosure in late 2019.

Another obsolete North Bay mall that has been reworked is a former downtown Napa shopping center. In the past few years, Zapolski Real Estate and partners have gutted or replaced portions of it to create the First Street Napa complex, anchored by the Archer Napa hotel.

Jeff Quackenbush covers wine, construction and real estate. Before the Business Journal, he wrote for Bay City News Service in San Francisco. He has a degree from Walla Walla University. Reach him at jquackenbush@busjrnl.com or 707-521-4256.